A Few Chinese Bad News Bears To Spoil A Happy New Year

EconMatters

Dec. 27, 2011, 2:28 PM

By EconMatters Goldman's Jim O'Neill noted in a recent interview that the world's future prosperity depends on China's growth. While we don't totally agree with that assessment as we see China as one of the many contributory factors towards world's future, there are some recent bad news bears coming out of China that could spell troubles for markets, at least in 2012.Export Growth Could Drop to Zero in 2012 The General Administration of Customs released November trade figures showing export growth continued to decelerate and was at their most sluggish in two years. At a news conference, China's Commerce Ministry spokesperson warned, "The overall trade environment next year for China will be complicated, partly due to the economic uncertainties in the European countries, and I should say that the export situation in the first quarter of next year will be very severe."Wang Tao, an economist at UBS Securities noted China's export growth is expected to "drop to zero in 2012," which will have a "sizable negative impact on the economy," and that the export figures underline "shifts in the export structure - some traditional lower-end and labor-intensive sectors may be losing market share to cheaper producers." (See Chart Below)

Chart Source: ChinaDaily.com, 14 Dec. 2011

FDI Sees Its First YoY Drop in 28 Months Part of China's recent explosive growth has to do with foreign investments pouring into the country to capitalize on the expected burgeoning middle class income growth. But in November, China experienced its first year-on-year dip of 9.76% in Foreign Direct Investment (FDI) in 28 months primarily from a sharp drop in inflows from the United States, while investments from the European Union -- China's single largest trading partner -- were essentially flat. (See Chart Below). Moreover, this drop came on top of the first net capital outflow from China in four years in October, as investors fled emerging markets due to Europe's festering debt crisis.

Chart Source: ChinaDaily.com, 16 Dec. 2011

Manufacturing Tanks To Near Three-Year Low China's manufacturing contracted for the first time since February 2009 with the Purchasing Managers' Index (PMI) fell to 49.0 in November from 50.4 in October. (Read: China Manufacturing Tanks To Near 3-year Low) The December number did not bode well either as the HSBC flash manufacturing PMI, an early indicator of China's industrial activity, showed China's factory output shrank again in December after new orders fell. (See Chart Below)